A Look at the GDP Impact of Cap and Trade

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The National Association of Manufacturers and the American Council for Capital Formation just released a new analysis of the economic impact of the Waxman-Markey bill better known as Cap and Trade. As we have previously argued, no bill should be implemented without a detailed understanding of the potential costs weighed against the benefits. This study specifically examined the impacts on energy security, economic growth and US competitiveness. Moreover, it relied upon a standard methodology, the National Energy Modeling System (NEMS), used by the US Energy Information (EIA) for its own energy forecasting and policy analysis. This methodology is what Congress and other federal agencies use to analyze potential energy policy options.

At a high level, the study concluded that US growth will slow under the bill and will slow further after 2020 when the free emission allowances are phased out. Industrial production will decline by 5.3% – 6.5% (under both a low cost and a high cost scenario presented in the study), employment is negatively impacted, energy prices increase and household income drops. From a metals industry perspective, primary metals production will fall by, in the low cost case scenario, 6% in 2020 to 23% by 2030. In the high cost scenario, primary metals production will fall from 9% in 2020 to 29% by 2030. Overall manufacturing employment will fall from between 1.8% in 2020 under the low cost scenario to 5.8% by 2030. In the high cost scenario, job losses will be 2.3% in 2020 to 7.3% by 2030.

From an overall GDP standpoint, losses range from $2.2 trillion in the low cost case to $3.1 trillion in the high cost case. Even in the employment analysis weighing in new green job creation against potential job losses, the numbers don’t look positive, over the 2012-2030 period, total US employment averages between 420,000 and 610,000 fewer jobs each year under the low and high cost scenarios than under the baseline forecast.”

NAM also publishes a state-by-state impact report. Not surprisingly, the Mid-West is among the hardest hit, mostly due to lower household income than the national average.   And as the study concludes, Given the wide recognition that without strong emission cuts in developing countries like China and India, US emission reductions would have only negligible environmental benefits, policymakers should proceed cautiously as they develop climate change policies. And as Stuart reported last week, we’re paying for China’s [lack] of environmental policies.

–Lisa Reisman

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